Dec 13, 2014

The Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) are essentially welfare that is administered through the federal income tax code. The credits are both aimed at low income households with children that offset their individual income tax liability. Additionally, if the taxpayers has a credit worth more than their tax liability, they can have that additional credit “refunded” to them in the form of a cash payment.

Overall, that is $21.6 billion in improper payments that other American taxpayers are having to make up for with higher tax bills. To put that into perspective, according to state tax data from the IRS, this is the equivalent of all the tax dollars collected from taxpayers in Colorado ($21.8 billion) in 2012—or any combination of smaller states such as Maine ($3.5 billion), North Dakota ($3.6 billion), Rhode Island ($3.8 billion), South Dakota ($3 billion), West Virginia ($4.1 billion), and Wyoming ($3.5 billion) (see Table 1) with a combined total of $21.5 billion. I wonder how all of these taxpayers feel about their tax dollars going down the “improper payment” rabbit hole?

The TIGTA report does go into detail on the various reforms that the IRS could implement to reduce these improper EITC and ACTC payments. For instance, greater data integration with resources such as the National Directory of New Hires and Employment Data would help the IRS flag potentially erroneous EITC and ACTC payments.

However, none of these reforms gets to the real problem—the IRS should not be in the welfare business. This mission creep takes away from the IRS’s core mission to collect taxes owed to Uncle Sam in the most efficient manner possible. As such, as this TIGTA study shows, the IRS is now unable to perform all of its activities at a reasonable level of efficiency.

To make matters worse, the IRS is now responsible for enforcing Obamacare penalties—with the IRS’s current track record we already know that they will fail miserably in this new mission. Additionally, Obamacare will force taxpayers to provide the IRS with an historical unprecedented level of information. Combined with the recent IRS scandals, does anyone think this is going to end well?

J. Scott Moody

Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.